Investor

JBG SMITH Properties: Investor Brief 3Q22


November 1, 2022

To our dear shareholders:

We live in times like these. In normal, predictable environments, indexing beats active management every time. This is as true in real estate management as in any other asset class. It is in times of volatility and uncertainty that we make our living, and it is precisely in these environments that the experience of our team matters most. Although capital markets are considerably less active than they were just six months ago, our business fundamentals remain strong. Physical office occupancy is steadily increasing, apartment rents continue to show strong gains, and our underlying growth and demand drivers remain incredibly strong. Against this backdrop, continued rate hikes and increased bank capital requirements have dampened investment lending and sales activity, and we expect this reduced level of activity to continue through to next year. We also know that downturns are rich with opportunities for the well-prepared and well-capitalized investor. Through years of prudent, disciplined and timely capital allocation and strategic decisions, our balance sheet and portfolio are positioned not only to weather the storm and protect against downside, but also to capitalize on these opportunities and generate growth. long-term net asset value. per share. Here are the highlights of our achievements in pursuit of this goal:

We completed $1 billion in divestments well ahead of our year-end target and ahead of market conditions

deteriorated. At the same time, we continued to take advantage of the disconnect between our share price and our net asset value, repurchasing 14.2 million shares year-to-date at a weighted average price per share of 25 $.49.

We fund our operations primarily with non-recourse asset-level financing and maintain a large pool of unencumbered multi-family assets, which provides a valuable source of potential liquidity. We have a well-phased debt schedule, with short termoffice exposure, and we have strategically maintained a pool of unencumbered multi-family assets, with an estimated borrowing capacity of at least $500 million, providing a cycle resistantsource of liquidity. Additionally, in July, we successfully refinanced and increased our Tranche A-2Term loan at $400 million at SOFR plus 125 basis points – hard to reach pricing today.

We have locked in prices for 1,583 multi-family units currently under construction in late 2020 and 2021, resulting in construction costs below 2019 levels. We are developing these units at an estimated 6% return on cost and expect deliveries to begin in 2024. Today’s inflated construction prices are negatively impacting new developments; therefore, we have intentionally delayed the start-up of 410 multi-family units (205 common units) in Potomac Yard, which we originally planned to start in 2022. We continue to advance our land bank design and rights to maximize value and monetization opportunities. We expect our development pipeline of 8.6 million square feet (excluding not essentialassets) to be fully eligible by 2024. When costs normalize, we will be ready with an extremely attractive portfolio of ready to usegrowth opportunities.

Our portfolio is concentrated in the recession-resilient Washington, DC metro area. In addition to the region’s strength, most of our assets are located in or near National Landing, which benefits from four powerful demand drivers – Amazon HQ2 (mid-2023expected delivery), the Virginia Tech Innovation Campus (expected delivery in 2024), the Department of Defense, and our investments in digital infrastructure – all of which help position our portfolio to weather a downturn. These catalysts have already begun to manifest themselves in robust leasing activity in

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defense and technology tenants seeking local tech talent, proximity to the Pentagon and participation in the tech ecosystem we are building at National Landing.

In this context, our core business achieved an exceptional performance in the third quarter. The NOI of the same store increased by 11.5% Year after year.Occupancy of our multi-family portfolio increased by 140 basis points quarter more-quarter to 93.7%, with rents rising 6.7% on renewal for third quarter lease expirations. And we executed 207,000 square feet of office leases, more than 50% of which included new leases at National Landing. We provide more details on our third quarter results below.

Capital allocation

Although capital markets transaction activity remains subdued, we have nevertheless positioned our balance sheet so that we can maintain our flexibility and allow us to be opportunistic even in a recessionary environment. We continued our multifamily growth strategy through the acquisition of three off-market partners within our multifamily portfolio for approximately $180 million, representing a weighted average stabilized cap rate of 4.5% to 5%. These buyouts include (i) the previously announced $55.7 million acquisition of the remaining 36% stake in Atlantic Plumbing; (ii) the acquisition for $115 million of the remaining 50% interest in 8001 Woodmont; and (iii) the acquisition for $9.5 million of an additional 3.7% interest in The Wren. Through these transactions, we have increased our multi-family exposure and deferred taxable gains through a like-for-like exchange.

During the third quarter, we invested approximately $60 million in projects under construction at National Landing, including 1900 Crystal Drive and 2000/2001 South Bell Street, representing 1,583 new multi-family units under development with an expected return 6% on the cost. As with all of our development projects, we have secured guaranteed maximum price contracts on these projects with construction costs below 2019 levels. We had planned to begin construction of 410 multi-family units (205 shared units) in Potomac Yard earlier this year. However, with costs having increased by 20% over the past year, today’s inflated construction prices are not conducive to new developments. With over 3,600 units in our near-term development pipeline, we continue to monitor construction costs and general market conditions to ensure we maintain our disciplined standards of capital allocation.

Finally, in the third quarter, we repurchased 2.3 million shares at a weighted average price per share of $23.35, for a total of $54.0 million. These buybacks continue our strategy of average in a fluctuating business environment while maintaining careful monitoring of liquidity, balance sheet strength and attractively priced sources of capital for future opportunities.

Financial and operational measures

For the three months ended September 30, 2022, we reported basic FFO attributable to common shareholders of $41.2 million, or $0.36 per diluted share. Same-store net operating income for the quarter increased 11.5% year-over-year to $78.1 million. Our multi-family portfolio ended the quarter at 95.5% leased and 93.7% occupied. Our office portfolio ended the quarter at 88.3% leased and 85.9% occupied. For second-generation leases, the mark-to-market rental rate is negative at 2.7%. As mentioned previously, our mark-to-market valuation will vary from quarter to quarter depending on signed leases.

As of September 30, 2022, our total net debt/enterprise value was 49.3% and our net debt/annualized adjusted EBITDA was 7.9x. Net debt to annualized adjusted EBITDA would have been 7.7x, and net debt to total enterprise value would have been 48.6%, after adjusting for acquisitions and divestitures that occurred during and after the end of of the quarter.

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Properties JBG SMITH published this content on November 01, 2022 and is solely responsible for the information contained therein. Distributed by Audienceunedited and unmodified, on November 01, 2022 20:36:07 UTC.

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Analyst recommendations on JBG SMITH PROPERTIES

2022 sales 513M

2022 net income

Net debt 2022

PER 2022 ratio
2022 return 4.63%
Capitalization 2,224 million
2,224 million
capi. / Sales 2022 4.34x
capi. / Sales 2023 4.21x
# of employees 997
Floating 98.4%

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Medium consensus HOLD
Number of analysts 3
Last closing price $19.44
Average target price $23.00
Average Spread / Target 18.3%